A commonly used strategy for asset protection is to own business assets in one entity (the asset holding entity) whilst a separate (trading) entity carries the risk associated with running the business. The asset holding entity leases, hires or rents the assets to the trading entity, protecting them in the event that the trading entity becomes insolvent.
Under the Personal Properties Securities Act (PPSA) which came into effect from January 30th in the year of 2012, this arrangement will be considered a PPS lease and need to be ‘perfected’ by registration on the PPS Register.
The practical effect of not correctly registering the PPS Lease is that should the trading entity become insolvent, ownership of the assets will be transferred automatically to the company in administration. And the proposed asset protection structure will have been rendered impotent.
Whilst there are some transitional provisions which provide ‘temporary perfection’ for up to 24 months for arrangements that were in place prior to January 30th, 2012, any new arrangements must be correctly documented and registered on the PPS Register.
The regulatory environment in Australia changes constantly and we are becoming a more litigious society so vigilance in protecting your hard earned assets in advisable.
About David Officen
David is the Founder and Managing Director of proCFO. David combines an accounting and consulting background with commercial experience both as a manager for large commercial businesses and as the owner of private and family businesses.